Taekwang Industrial Abandons 318.6 Billion Won Bond Plan

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Company Withdraws Plan to Issue Exchangeable Bonds

Taekwang Industrial recently made a surprising decision to withdraw its plan to issue exchangeable bonds backed by treasury shares. This move has raised concerns about the potential infringement on shareholder interests.

Earlier in June, Taekwang Industrial had announced its intention to issue exchangeable bonds worth 318.6 billion won, using its 24.41% stake in treasury shares as collateral. However, this announcement faced significant backlash from shareholders. Exchangeable bonds allow companies to raise funds without immediately selling their treasury shares. Creditors can convert the principal into shares if specific conditions are met.

The controversy arises from the fact that when the exchange rights of these bonds are exercised, the company's treasury shares are released into the market. This process effectively results in a new share issuance, similar to a third-party allotment of paid-in shares. As a result, there are concerns that existing shareholders' stakes could be diluted, potentially leading to a decrease in shareholder value.

There have also been criticisms that this move contradicts the current government's efforts to push for mandatory treasury share cancellation and to enhance shareholder value. Truston Asset Management, which holds a 5.95% stake as the second-largest shareholder, commented, “This is a loophole aimed at avoiding the potential mandatory cancellation of treasury shares if the Commercial Act is revised.”

Initially, Taekwang Industrial planned to use the funds from the exchangeable bonds to invest in new business ventures. However, the company ultimately decided to withdraw this plan. In a statement, the company said, “We have listened to the opinions of stakeholders, and there have been significant changes in the conditions for issuance, including a sharp decline in Taekwang Industrial’s stock price over the past five months.” It added, “We will further strengthen communication with stakeholders, including shareholders, and make efforts to enhance shareholder value and restore market confidence.”

Key Points of Controversy

  • The withdrawal of the exchangeable bond plan has sparked discussions about corporate governance and the impact on shareholder interests.
  • The use of treasury shares as collateral for exchangeable bonds raises concerns about share dilution and potential loss of value for existing shareholders.
  • Critics argue that the move may undermine the government's initiatives to promote transparency and protect shareholder rights.
  • Truston Asset Management highlighted the possibility of exploiting loopholes to avoid mandatory treasury share cancellations.
  • The company cited changing market conditions and a drop in stock prices as reasons for its decision to withdraw the plan.

Future Steps

Taekwang Industrial has emphasized its commitment to engaging with stakeholders and improving shareholder value. The company plans to continue its efforts to rebuild trust and ensure that future decisions align with the best interests of all shareholders. This includes maintaining open lines of communication and considering the broader implications of its financial strategies.

As the company moves forward, it will need to address the concerns raised by shareholders and demonstrate a clear path towards enhancing long-term value. The situation highlights the importance of balancing corporate objectives with the needs and expectations of the investment community.

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